Set-Off Clause

AAA

DEFINITION of 'Set-Off Clause'

A legal clause that gives a lender the authority to seize a debtor's deposits when they default on a loan. A set-off clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptcy proceedings.

INVESTOPEDIA EXPLAINS 'Set-Off Clause'

If a debtor is unable to meet an obligation to his or her bank, the bank can seize the customer's current deposit. Set-off provisions are not limited to loans between banks and their customers, but are also widely used in other industries, such as construction.

The Truth in Lending Act prohibits set-off clauses from applying to credit card transactions; this protects consumers who decline to pay for defective merchandise.

RELATED TERMS
  1. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Writ Of Seizure And Sale

    An order issued by a court that allows the petitioner (usually ...
  4. Default

    1. The failure to promptly pay interest or principal when due. ...
  5. Truth In Lending Act - TILA

    A federal law enacted in 1968 with the intention of protecting ...
  6. Adverse Domination

    A legal doctrine that allows regulators to bring litigation against ...
Related Articles
  1. Top 9 Solutions To An Unexpected Tax ...
    Taxes

    Top 9 Solutions To An Unexpected Tax ...

  2. IRS Asset Seizures: Could It Happen ...
    Taxes

    IRS Asset Seizures: Could It Happen ...

  3. Asset Protection For The Business Owner ...
    Options & Futures

    Asset Protection For The Business Owner ...

  4. 7 Ways To Save Money On Business Travel
    Savings

    7 Ways To Save Money On Business Travel

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center